SCOTUS extends whistleblower protection to private contractors of public companies

A Supreme Court decision in Lawson v. FMR broadens the definition “whistleblower” under the 2002 Sarbanes-Oxley Act and could mean a change in compliance standards for many companies.

On March 4, the Supreme Court ruled in a 6-3 opinion that employees of a public company’s private contractors and subcontractors can be covered by whistleblower protections under the Act. This means that even private-company employees who allege they were retaliated against as a result of whistleblowing can bring claims against their employer.

In Lawson, the section of the Sarbanes-Oxley Act in question is §1514A, which Justice Ruth Bader Ginsberg wrote in her majority opinion as follows, “No [public] company . . . , or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].”

In the past, this provision covered only public companies as set forth by the law. Ginsberg, however, claims that past corporate misdeeds have proven that the intent of Sarbanes-Oxley should extend to private employees as well.

“Given Congress’ concern about contractor conduct of the kind that contributed to Enron’s collapse, we regard with suspicion construction of §1514A to protect whistleblowers only when they are employed by a public company, and not when they work for the public company’s contractor,” Ginsberg wrote in her opinion.

Jackie Lawson and Jonathan Zang brought the suit against their former employer, FMR, for retaliation after the two raised concerns about suspected wrongdoing within the company. As part of their suit, the former employees claimed that they were eligible for Sarbanes-Oxley protection because FMR, the parent company of Fidelity Investments, holds various investment companies that file reports with the Securities and Exchange Commission.

The Supreme Court made no ruling on the merits of the case other than to rule Lawson and Zang were eligible for protection under the Act.

For more on recent Supreme Court rulings and what they mean to in-house counsel, check out these articles: